China auto market laggards chase premium profile

Worker cleans a Citroen DS5 at Auto China 2012 in Beijing

Visitors and journalists look at the Peugeot 4008 at Auto China 2012 in Beijing

Thousands of Chinese consumers already have the T-shirt. All Fiat-Chrysler boss Sergio Marchionne has to do now is sell them the car.

Jeep's ambitions for the world's biggest auto market - where the brand is popular as a clothing label - join efforts by parent Fiat , as well as Renault and PSA Peugeot Citroen , to raise their Chinese profiles and compete with German car makers for premium sales.

At the Beijing auto show this week, Renault, Fiat and Citroen unveiled roomy sedans and concept cars designed for China. Jeep, part of Fiat-controlled Chrysler, flagged plans for a return to local production after a six-year gap, plugged only partially by imports that topped 22,000 four-by-fours last year.

"Chinese SUV sales have seen 46 percent compounded annual growth over the last five years and we expect that to continue," said Michael Manley, Fiat-Chrysler chief operating officer for Asia. The company is discussing Jeep assembly with Fiat's existing partner Guangzhou Automobile Co.

Jeep apparel, sold under license through some 600 Chinese outlets, reflects the same "outdoor lifestyle" as the vehicles and can only help them, Manley said in an interview. "It's kept Jeep top-of-mind."

French and Italian car makers meanwhile see China as a clean slate on which to create a more exclusive image than their brands enjoy at home.

They are chasing the runaway success of Volkswagen's Audi, which accounts for almost one-third of fast-growing Chinese luxury car sales, followed by a 23 percent market share for BMW and 21 percent for Daimler's Mercedes Benz.

Peugeot, Fiat and Renault are appealing to fuzzier perceptions of European luxury in a bid to woo Chinese buyers to "near-premium" cars priced above the mass market but below the dominant Germans.

Citroen CEO Frederic Banzet wheeled out a concept car called "No.9" for the Peugeot sister brand's upscale DS line and said there was "no coincidence" in the resemblance to Chanel perfume names. "DS takes its inspiration from the best French luxury traditions," he explained.

The long, low-slung show car prefigures a larger sedan and SUV planned for China after the DS5 mid-sized model to be imported from June, then assembled with local partner Changan next year.

The DS range, sold alongside more prosaic Citroen models in Europe, will get its own Chinese showrooms with a premium feel.

Fiat is also hoping for a branding piggyback. The automaker is importing a "Gucci edition" of its retro-styled 500 small car to set the scene for its new Chinese-built Viaggio sedan, unveiled at the Beijing show for a June launch.

"There's a huge opportunity for Fiat to speak Italian in China," brand CEO Olivier Francois said. The group's sportier Alfa Romeo badge could be introduced later through the same Italian-themed dealerships, according to the company.

"China offers a big chance for these car makers to reposition themselves with a lot more freedom," said Manfred Abraham, head of branding strategy at global consultancy Interbrand.

While consumers are relatively unaware of past quality issues, he said, "French and Italian luxury goods are known everywhere, so to some extent they can trade off that," he said.

Success in China would throw a lifeline to the French and Italian car makers as they struggle with mounting losses in home markets blighted by sagging demand, excess production capacity and cut-throat discounting.

But Credit Suisse analyst Arndt Ellinghorst is skeptical about their chances. The mass automakers' push follows a cooling of Chinese vehicle market growth - to 2.5 percent last year from 32 percent in 2010 - that has sparked tougher price competition.

"It's going to be terribly difficult for them to build up brand heritage," Ellinghorst said. "Chinese consumers aren't naive about product quality and they're extremely brand-sensitive."

Renault China Managing Director Robert Chan acknowledged the challenge facing the French carmaker's planned joint venture with Dongfeng Motor Group and its Talisman "casual luxury" sedan unveiled at the show.

But Chinese consumer sophistication has "improved to a level where they are exploring for differences", Chan said, creating appetite for "upper-end European style with affordable premium".

Still, executives and analysts admit, China's fast-evolving market brings a degree of unpredictability that can confound the best forecasts.

Jaguar initially got a lukewarm reception upon entering China almost a decade ago, when the big cat's face stared out from a logo in the centre of its steering wheels, according to an executive who worked on the British luxury car brand's marketing.

"It was considered very bad luck to look a cat in the eyes," he said. "But it took ages to figure this out because nobody wanted to talk about it."

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